(Part two of Nate “mydog” Freeman’s consumer gadfly investigation into VSAC’s shrouded finances. I must say, I have never encountered an institution or entity in this state more impenetrable or more ensconced in a “don’t-ask-questions-if-you-know-what’s-good-for-ya” mystique. I think a lot of folks are watching this closely… – promoted by odum)
VSAC is to Vermont what Wall Street is to the Nation.
Dear Officers and Members of the House Commerce and Ways & Means Committees:
My name is Nate Freeman, I am a constituent in Northfield and I want to alert you to the level of risk Vermont taxpayers are exposed to with a $50 million moral obligation supporting VSAC as reported in the Brattleboro Reformer last week . If you have any question about the following note, please call me at 802.485.4428.
I request your urgent attention to the question of VSAC's request for a possible bailout. Additionally, I request an opportunity to testify on any decision regarding a moral obligation or other financial support of VSAC if that opportunity is available.
My qualifications include a background in finance in setting up a 2005 BISHCA-approved Registered Investment Advisor firm.
My qualifications include a background in finance in setting up a 2005 BISHCA-approved Registered Investment Advisor firm.
I have been researching VSAC's financials since an informal complaint on November 23rd. On January 30th I filed a formal request for audit on the subject of accounting discrepancies at VSAC.
Briefly, here is the source of my urgent concern:
1. VSAC's request for a $50 million moral obligation exposes Vermont taxpayers to a higher, unassessed level of risk significantly higher than any other moral obligation provided to state agencies. This is because
a. Since VSAC's crisis last spring, the lender has entered the Variable Rate Demand Obligation (VRDO) market.
c. The alert warned of higher supply than demand in this market, which could lead to market failure.
d. The alert warned Higher Ed institutions to assess the level of risk associated in the VRDO marketplace.
e. The alert warned that VRDOs should be classified as a “current liabilty.”
f. VRDOs have a “demand” feature, allowing investors to demand their money back from VSAC at any time.
g. A line of credit (or moral obligation) is required for VRDOs because of this “demand” feature. Since investors can force a sale of the security back to VSAC at any time, the line of credit provides immediate collateral.
What this means: Vermont taxpayers face an almost predictable tax bailout of VSAC for up to $50 million.
In context to the current financial crisis and government bailouts, you should also know that VSAC's top 5 executives receive lavish salaries, bonuses, benefits and perks. In FY '08, VSAC spent over $660,000 in travel expenses alone. No one at VSAC has provided total compensation of the top 5 executives upon recent requests. No one at VSAC has suggested a 5% cut in salary.
I hope you understand the urgency of this note. VRDO's are a complex financial instrument beyond the general grasp of the average Vermonter. It is incumbent upon our legislative body to consider VSAC's request with heightened caution during this time of financial crisis.
Sincerely,
Nate Freeman
109 VT RTE 12A
Northfield, VT 05663
(802) 485-4428
(802) 485-4428